Aus & NZ: Budget 2018: Federal infra spend shifts back to grants

08 May 2018 - 12:00 am UTC

The federal government has returned to traditional infrastructure spending in the 2018-19 budget handed down on Tuesday (8 May), which includes AUD 24.5bn (USD 18.4bn) allocated as grants to transport projects.

The biggest single outlay – the AUD 5bn earmarked for the Melbourne Airport Rail line – may become an equity investment, however, officials from the Department of Infrastructure confirmed. This depends on whether the Victorian government chooses to match the money as funding or financing.

Industry group Infrastructure Partnerships Australia (IPA) has argued “hard dollar” infrastructure funding – meaning grants as opposed to investments – is still falling over the four-year forward estimates. IPA chief executive, Adrian Dwyer, said in a statement infrastructure grant funding had in fact been cut by AUD 2bn over the forward estimates.

IPA argues there is no need for public finance when there is so much private finance available. The federal government argues it should get a return on the money it hands out where it can.

The budget papers appear to bear out IPA’s argument on infrastructure spending. Total grant funding to infrastructure projects is projected to drop from AUD 7.17bn in 2017-18 to AUD 4.55bn in 2021-22. This is due to around AUD 15bn being allocated as equity or loans.

Direct capital grants, which would include non-infrastructure spending, fall from AUD 11.5bn to AUD 8.6bn over the forward estimates to 2021-22.

Meanwhile, direct capital investments rise from AUD 14bn to AUD 17.2bn.

The AUD 24.5bn in today’s budget is part of the AUD 75bn announced in the 2017-18 budget to be spent on transport projects up until 2027-28.

But, as promised last year, the government has now allocated the money to numerous projects across the country, on top of a couple of big investments announced last year.

These were dominated by equity investments of AUD 5.3bn for Western Sydney Airport and AUD 8.4bn for the Melbourne to Brisbane Inland Rail.

Along with the AUD 2bn concessional loan to WestConnex in the 2014-15 budget, those two projects account for the lion’s share of budgeted transport investments.

The vast majority of new projects in this year’s budget were announced in the lead up to its release today. 

The budget reveals that just AUD 4.25bn of the grant funding for transport has so far been allocated to projects over the four-year forward estimates that the budget covers. 

Additional measures revealed in the budget include:

-An AUD 3.5bn Roads of Strategic Importance initiative directed to regional road upgrades, with AUD 1.5bn reserved for northern Australia across Queensland, Northern Territory and Western Australia. This includes AUD 160m to upgrade the Outback Way which stretches across Central Australia from Queensland to Western Australia;

-There will also be AUD 250m for a Major Project Business Case Fund for assessments outside the existing ten-year AUD 75bn plan. The government has earmarked AUD 15m of this for a rail line from the regional city of Toowoomba about 150km west of Brisbane. Another AUD 10m will be used to assess a so-called 100km EastLink Orange Route road from Perth to Northam in WA.

Overall, rail accounts for AUD 7.9bn of the AUD 24.5bn grants for transport projects. Apart from Melbourne Airport rail this includes a further AUD 1.1bn for Perth’s Metronet suburban train line project and AUD 475m to help build a new rail line to the Monash Precinct in Melbourne.

Roads get around AUD 4.5bn with the addition of an AUD 1bn Urban Congestion Fund to help relieve “pinch points” on roads and “last-mile access” to ports, airports and freight hubs, although some of this may not go to extra roads.

The biggest allocation to a road project is AUD 1.75bn to the AUD 16.5bn North-East Link PPP in Melbourne.

However, the government says its offers of AUD 3bn for the East-West Link motorway in Melbourne and AUD 1.2bn Perth Freight Link still stand. These would be given as grants if any future government choses to revive these projects.

The East-West Link was scrapped by Victoria’s present Labor government. The state’s opposition Liberal-National coalition has pledged to reinstate this project and scrap the North-East Link if it wins the upcoming election in November.

Stretching infrastructure spending over ten years and allocating large parts as equity or loans has helped the government to turn a deficit of AUD 14.5bn in 2018-19, to a cash surplus of AUD 2.2bn in 2019-20. This is projected to rise to a AUD 16.6bn surplus by 2021-22.

Treasurer, Scott Morrison, told reporters a rise in tax receipts from a big jump in new jobs was a big contributor to a rise in government income that is assisting the return to surplus.

He cited infrastructure projects as a major contributor to the 415,000 new jobs created in 2017, from less than 100,000 in 2016.

Real GDP is forecast to reach 3% in 2018-19, up from 2.75% in 2017-18. The government forecast annual real GDP growth at 3% a year out to 2021-22.

The centrepiece of the budget was AUD 140bn in personal tax cuts over the next decade starting on 1 July. This includes a modest cut for low and middle-income earners as the government prepares for an election by early next year.

The cuts are being achieved by raising the income level at which marginal tax rates apply between now and 2025. By then the government said the proportion of taxpayers on a marginal rate of 32.5% would rise from 63% to 94%.